Couple of dumb questions about VTWSX, if I may...

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Scott S
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Couple of dumb questions about VTWSX, if I may...

Post by Scott S » Sat Sep 04, 2010 3:03 am

My apologies if this has been covered elsewhere, but I'm still trying to decide between VTWSX (Total World Stock) and a mix of VTSMX (Total US stock) and VFWIX (FTSE ex-US) for my future stock purchases. It seems that both options would contain the same things, although the amounts may be slightly different.

1) Slightly-higher fees are one aspect keeping me from the simplicity of VTWSX -- there is the 0.25% purchase fee and the 0.5% ER. I understand that fees are bound to be higher in a new fund, but how soon do you folks think those will come down to the level of VTSMX and VFWIX (which have an average ER of about 0.29%)?

2) Also, it seems that the annual dividend payout per share is lower for VTWSX (1.4%) than VTSMX and VFWIX (both ~1.9%). Is this also due to some of that money being needed to establish the fund, or is it an artifact of not being completely in line with the FTSE All-World Index yet? (Or something else?)

This will be for my Roth, so I'm interested in getting the most dividend payout I can from these companies along with the capital appreciation.

Thanks!
- Scott
My Plan: (Age-10)% in bonds until I reach age 60, 50/50 thereafter. Equity split: 50/50 US/Int'l, Bond split: 50/50 TBM/TIPS.

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grabiner
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Re: Couple of dumb questions about VTWSX, if I may...

Post by grabiner » Sat Sep 04, 2010 8:46 am

Scott S wrote:2) Also, it seems that the annual dividend payout per share is lower for VTWSX (1.4%) than VTSMX and VFWIX (both ~1.9%). Is this also due to some of that money being needed to establish the fund, or is it an artifact of not being completely in line with the FTSE All-World Index yet? (Or something else?)
This is partly the effect of the fund being new, and partly the effect of its higher expenses. If a fund pays dividends annually but uses new investments to buy a stock mid-year, then it will earn only a half year's worth of dividends on that stock, but the dividend payout will be based on the whole amount of stock which the fund held in December.

Thus a fund which is growing rapidly will have a lower dividend yield than the yield of its stocks. (This applies to VFWIX as well; VTSMX avoids most of the effect by paying dividends quarterly, and is also a much older fund and is thus not growing as fast.) This is a temporary tax advantage from a new fund; on the other hand, new ETFs have been more likely to pay out capital gains.

In addition, expenses are subtracted from the dividends that a fund pays out; the 1.48% dividend yield of VTWSX represents 1.98% yield on its stocks, while the 1.98% yield of VTSMX represents 2.16% and the 1.99% yield of VFWIX represents 2.39%.
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amh
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Re: Couple of dumb questions about VTWSX, if I may...

Post by amh » Sat Sep 04, 2010 11:16 am

Scott S wrote:1) Slightly-higher fees are one aspect keeping me from the simplicity of VTWSX -- there is the 0.25% purchase fee and the 0.5% ER.
You could also consider the ETF version of VTWSX. It has a 0.30% ER and no purchase or redemption fees (aside from commissions where applicable, of course).

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Houston101
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Re: Couple of dumb questions about VTWSX, if I may...

Post by Houston101 » Fri Mar 25, 2011 4:18 pm

Scott S wrote:Slightly-higher fees are one aspect keeping me from the simplicity of VTWSX -- there is the 0.25% purchase fee and the 0.5% ER.
Once someone has paid the initial $3,000 do we have to pay the 0.25% on each additional $100 also that we contribute or is the 0.25% assessed only on the first $3,000?

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CyberBob
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Re: Couple of dumb questions about VTWSX, if I may...

Post by CyberBob » Fri Mar 25, 2011 4:25 pm

Scott S wrote:VTWSX...the 0.5% ER.
amh wrote:...ETF version of VTWSX. It has a 0.30% ER...
The expense ratios have actually gone down for both the fund and ETF. They are now 0.45% and 0.25%, respectively.

Buy some Total World! The more we invest, the faster the expense ratio will fall 8)

Bob

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bertie wooster
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Post by bertie wooster » Fri Mar 25, 2011 5:06 pm

The high expense ratio and the purchase fee make Total World a bad choice in my opinion. Yes, the fund will grow and these will fall - but Total Stock Market and Total International already have rock bottom fees without the purchase fee. They also have Admiral shares so the fees are about as low as you can get right now. In addition there is a bit more diversification since they have some small cap (though I think this isn't all that significant - all 3 of these funds are large cap blend).

To answer a previous question, you pay the purchase fee on all purchases, not just the first $3k.

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Post by chipmonk » Tue May 10, 2011 5:07 pm

bertie wooster wrote:The high expense ratio and the purchase fee make Total World a bad choice in my opinion. Yes, the fund will grow and these will fall - but Total Stock Market and Total International already have rock bottom fees without the purchase fee. They also have Admiral shares so the fees are about as low as you can get right now. In addition there is a bit more diversification since they have some small cap (though I think this isn't all that significant - all 3 of these funds are large cap blend).

To answer a previous question, you pay the purchase fee on all purchases, not just the first $3k.
Yeah, I don't see any benefit whatsoever to VTWSX... you pay a purchase fee *and* higher expense ratios *and* there are no admiral shares, as opposed to TSM and Total Intl which are better on all three counts.

As I understand it, Vanguard's purchase fees are paid into the fund itself, not kept as a commission. Presumably, they're being used to pay some of the start-up expenses here? If the fund takes off and offers better economies of scale, then I guess the purchase fees will go down, and later investors will reap the benefits of the sunk costs paid by the early investors. So why be an early adopter? (This is my modus operandus for technology products as well as investments :))

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Post by nisiprius » Tue May 10, 2011 7:48 pm

Are the extremely low expense ratios of Vanguard's older and better-established funds an impediment to Vanguard's launching new funds?
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Post by chipmonk » Tue May 10, 2011 7:53 pm

nisiprius wrote:Are the extremely low expense ratios of Vanguard's older and better-established funds an impediment to Vanguard's launching new funds?
I'd say yes. Especially in this case where there's no obvious need for the new fund that isn't met by existing ones. Am I missing something?

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Post by maxinout » Tue May 10, 2011 10:02 pm

I would agree that the low fees of their older funds is stopping a lot of people from investing in Total World. It's so easy to do it yourself for a lot less in fees using TSM and TISM.

However, that hasn't stopped people from investing over $1 billion in it so far, so I guess it has some value to people.

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Re: Couple of dumb questions about VTWSX, if I may...

Post by sambb » Fri Jan 03, 2014 2:23 pm

Interesting reading this thread, now 2014, the fund has 4 billion and expense ratio is down to 0.35 for the fund. I wonder when it will grow enough to have admiral shares. I just invested in this fund, and expect the costs will go down significantly in next 5 years.

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